Cooperman: You Lend Money To Germany For Two Years, You Get Negative Return

Top value fund managers are ready for the small cap bear market to be done

During the bull market, small caps haven't been performing well, but some believe that could be about to change. Breach Inlet Founder and Portfolio Manager Chris Colvin and Gradient Investments President Michael Binger both expect small caps to take off. Q1 2020 hedge fund letters, conferences and more However, not everyone is convinced. BTIG strategist Read More

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Elise thank you so much for joining us. So just coming off of Powell's testimony in front of Congress today speaking fairly positively about the economy but saying that he's seeing some conflicting signals out there how should stock market investors be reading his comments today.

Well I have an overriding. First of all in terms of the Fed there could be data dependent if the data supports the rise increased rates of data doesn't they won't. And I my guess is they're on hold for the foreseeable future. Maybe maybe get something happening by December depending on how the economy unfolds. LEE I read him as being very practical very pragmatic reason it is to wait to see what the data suggests. I think the bigger picture we're in a very abnormal world and I think investors have to recognize that the reason I say we're to have normal world is there is somewhere depending upon whether it's Bloomberg or J.P. Morgan somewhere between 9 and 11 trillion dollars of sovereign debt of negative interest rates just talk about it you know you lend money to Germany for two years you get negative return. You lend money to Germany for 10 years maybe you get 10 basis points. You lend money to Japan for 10 years you get zero. OK. It's not a real world. So I invest to try to figure out what's normal. OK. To me which no I've said this repeatedly it's old news is the labor force grows in America about half of 1 percent a year. The productivity the labor force grows 1 percent labor force Brussels productivity growth and real growth that's 2 percent real and we're probably slowing to that kind of level right now. And the inflation that we're looking for is 2 percent so call that 4 percent nominal. And 4 percent nominal world. The 10 year government bond ought to be 4 percent not to 6. It may take several years to get there because of global interest rates and the Fed funds rate to be something like 3 percent currently. Two and a quarter in that world they think the S&P would trade between 16 and 17 times earnings and S&P earnings were using this year 170 16 to 17 motorable and 170 they come up with the market that's somewhere around fair value.

So you'd think the market currently is trading at fair value or fair value.

But you know important to me yes it might be fair value for a lot of stocks are attractive relative to their fair value. And importantly the conditions that would normally lead to a big market decline just don't seem to be present. What are the conditions that lead to a big market decline. Number one is the stock market SMOs an oncoming recession recession is in the cards. Economic slowdown yes but recession is in the cards. Second the hostile Fed the Fed is far far away from anything hostile. Interest rates adjusted for inflation or zero. Normally you have 4 500 basis point real rate before you bring the stock market the economy down. Thirdly as expected evaluation we don't have speculative valuation. We don't have the public you know upbringing the speculative fashion the fourth thing which you can't forecast is some significant geopolitical event that just happens out of the blue with lots to worry about North Korea Ukraine you name it. The White House. We have an unconventional White House which is the stabilizing people a little bit but I think the conditions are a big decline are pressure the market is on a fair value. We're OK.

Kuperman it's Kelly. Very well. Yeah I just wanted to jump in and say I have significant long term concerns however. Yes go ahead Kelly. There are plenty of those to go around. I'm very well thank you and it's good to see you and I'm glad you're here today because I wanted to ask you what your opinion is having tangled with the FCC over the years. What do you think of the way that they're treating Elon Musk. You know the way that he's tweeted he says look they kind of have a vendetta against him and they're singling him out for an unfair treatment.

What do you think. I don't know. He's he's brilliant. His situation is totally different. For as I'm sure he's brilliant but he conducts himself like an adult supervision you know and I'm an investor in Tesla. If I wasn't in Tesla I would be very worried about his department.

And he runs a public company responsible with the public.

My situation was totally different. Our was called no admit no deny. So I have to be careful what I say. The bottom line is the ICC is very wrong minded in what they do. They are abusive in their conduct. I've said that publicly you know and I will tell you a little story. It's all true and I have witnessed this story about a year ago. Pricewaterhouse sponsored a seminar in Palm Beach and the guest speaker was Mary Jo White who was the head of the S.Y. case was brought in and I went and I went over to introduce myself and I said you know you're lucky I'm a gentleman I'm not going to attack in public it's not my style. But here's a sealed envelope of the question if he answer the question I'll give a hundred thousand dollars to your favorite charity and saying she was game she says I can't wait. What's the question. I said when you went.

Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. -
Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver

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